The UK energy powers to be devolved to Holyrood in Govt draft Scotland Bill

Holyrood logoThe UK Government has published its Draft Scotland Act – which will devolve more powers to Holyrood from Westminster after the British general election in May 2015.

The Draft Bill contains key clauses on income taxes, employment and welfare rights, fuel poverty and energy planning, onshore fracking.

These are all almost identical to the proposals published last year in the Smith Commission following Scotland’s Independence referendum, and which were contemporaneously reported in detail by Scottish Energy News at goo.gl/zzPYgM  and at  http://goo.gl/Ha73s9 

The draft clauses presented in draft Scotland Bill represent the ‘fulfilment of a promise made to the people of Scotland.’ The next session of the UK parliament will see these clauses brought forward in a new Scotland Bill.

The energy sector powers the draft Scotland Bill proposes to give to the Scottish Parliament are reproduced verbatim below:

 

Chapter 8 Energy

Great Britain (GB) benefits from a single energy market, which delivers a safe, secure energy system where costs are spread over the GB consumer base. Existing arrangements are designed to match energy supply and demand requiring sophisticated networks and diverse sources of supply across the whole of GB.

 Energy is, for the most part reserved in relation to Scotland, however the Scottish Government possesses a variety of executive functions relating to energy policy.

 The draft clauses set out in this chapter, following the recommendations made by the Smith Commission Agreement, complement and build upon the existing powers that sit with the Scottish Government and Scottish Parliament. These drafted provisions sit within specific areas where proposed approaches can enhance correlation between supply and demand or facilitate coordination with the responsibilities already devolved without sacrificing the integrity or stability of the GB-wide energy market.

The specific amendments set out in the Agreement and below encompass executive and legislative powers for several policy issues including powers concerning the design and implementation of supplier obligations in relation to energy efficiency and fuel poverty, the licensing of onshore exploration and extraction of oil and gas, responsibility for mineral access rights, and a formal consultative role for renewable energy incentives.

 

 Energy Efficiency and Fuel Poverty

Powers to determine how supplier obligations in relation to energy efficiency and fuel poverty, such as the Energy Company Obligation and Warm Home Discount, are designed and implemented in Scotland will be devolved.

Responsibility for setting the way the money is raised (the scale, costs and apportionment of the obligations as well as the obligated parties) will remain reserved.

This provision will be implemented in a way that is not to the detriment of the rest of the UK or to the UK’s international obligations and commitments on energy efficiency and climate change.

 Clauses 38 and 39 relate to paragraph 68 of the Smith Commission Agreement and powers concerning the design and implementation of supplier obligations relating to energy efficiency and fuel poverty in Scotland.

The clauses will transfer executive competence to Scottish Ministers to empower them to design and implement supplier obligations in Scotland. This is achieved through amendments to the Gas Act 1986, Electricity Act 1989 and Energy Act 2010 (the 2010 Act).

The design and implementation of supplier obligations is an element of the single Great Britain energy market and affects its operation.

Reserving control over the fundamental aspects of supplier obligations, as specified in paragraph 68 of the Smith Commission Agreement, ensures that the supplier obligation framework can continue to operate as part of the single GB market, thus preventing competitive distortions that could disadvantage some consumers.

Setting policies for addressing fuel poverty across Scotland, England and Wales is currently formed from a mixture of devolved matters, such as housing, buildings and promotion of energy efficiency, and reserved matters, such as prohibition and GB-wide regulation.

The functions for setting overall targets and strategies for addressing fuel poverty are already devolved to Scottish Ministers under the Scotland Act 1998 (the 1998 Act).

A supplier obligation scheme is defined as a regulatory obligation placed on one or more licensed electricity suppliers or licensed gas suppliers, requiring them to take action intended to make a direct contribution to improving energy efficiency or for the purpose of addressing fuel poverty.

Regulation making power in relation to schemes for reducing fuel poverty is executively devolved through clause 38. This is achieved by an insertion to the 2010 Act.

Holding powers over the design and implementation of energy efficiency and fuel poverty measures will enable the Scottish Government to more accurately meet the specific needs of Scottish households, whilst maintaining the strength and consistency found in the single GB energy market through the continued reservation of certain powers.

 

 Onshore Oil and Gas Extraction

The licensing of onshore oil and gas extraction underlying Scotland will be devolved to the Scottish Parliament.

The licensing of offshore oil and gas extraction will remain reserved.

Responsibility for mineral access rights for underground onshore extraction of oil and gas in Scotland will be devolved to the Scottish Parliament.

Clause 31 concerns paragraph 69 of the Smith Commission Agreement and the licensing of onshore oil and gas extraction. So far as onshore oil and gas is concerned, the clause will devolve to Scottish Ministers the current regime for the licensing of exploration and extraction of oil and gas.

Further, the clause will transfer to the Scottish Parliament legislative competence for the licensing of onshore oil and gas exploration and extraction. The licensing of offshore oil and gas extraction however is and will remain reserved.

Scottish Ministers and the Scottish Parliament already have substantial control of onshore oil and gas activities through planning controls and environmental regulation, which are fully devolved.

This enables Scottish Ministers to set the framework of consideration of all planning applications for oil and gas projects onshore; 

  • to refuse permission for activities which are not acceptable in the specific locations proposed;
  • to impose appropriate controls to prevent pollution and protect the environment in respect of proposals which do receive permission.

To give effect to the Smith Commission Agreement recommendation, the clause defines a ‘Scottish onshore area’ in which Scottish Ministers will be able to exercise powers under Part 1 of the Petroleum Act 1998, currently held by the Secretary of State, for the licensing of the exploration for and extraction of petroleum.

These will include powers to grant licences, and to make further provisions in respect of licences within the Scottish onshore area. Scottish Ministers will also benefit from information sharing powers and will gain powers of inspection, and powers to make Regulations setting out Model Clauses to be incorporated into licences.

However, the power to require consideration, which may take the form of a royalty, in return for the grant of a licence, will remain reserved as requiring a royalty would, in effect, levy an additional tax on onshore projects.

This meets the clear intentions that administration of existing licences and the issue of future licences should be matters for the Scottish Parliament while all aspects of the taxation of oil and gas receipts should remain reserved, as set out in paragraph 83 of the Agreement.

Clause 31 also addresses paragraph 70 of the Smith Commission Agreement and mineral access rights for onshore extraction of oil and gas.

In line with the transfer of legislative competence with regards to licensing onshore oil and gas extraction, the clause confers legislative competence on the Scottish Parliament in relation to access rights for onshore oil and gas.

Subsection (II) transfers executive functions to Scottish Ministers in relation to access rights for onshore oil and gas.

The clause will not confer legislative competence for health and safety legislation or the inspection and enforcement of that, including the Borehole Sites and Operations Regulations 1995.

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Renewables

There will be a formal consultative role for the Scottish Government and the Scottish Parliament in designing renewables incentives and the strategic priorities set out in the Energy Strategy and Policy Statement to which OFGEM must have due regard.

OFGEM will also lay its annual report and accounts before the Scottish Parliament and submit reports to, and appear before, committees of the Scottish Parliament.

 Clause 40 relates to paragraph 41 of the Smith Commission Agreement and the role of the Scottish Government in designing renewable incentives.

There are several existing schemes to support electricity generation from renewable sources.

  • These are the Feed-in Tariffs scheme, which supports small scale generation,
  • the Renewables Obligation, which supports large scale generation, and
  • the new Contracts for Difference regime, which is replacing the Renewables Obligation in that context.

 The current degree of involvement of Scottish Ministers, including consultation, varies by scheme.

The clause will establish a broad duty on the UK Secretary of State for Scotland to consult the Scottish Government on the design of new incentives to support renewable electricity generation, or the re-design of the existing incentive schemes detailed above.

 The duty will arise where the new incentive would apply in Scotland, or any re-design would affect the way an incentive operates in Scotland. It will apply to incentives that are both statutory and non-statutory in nature.

 

 OFGEM/ market regulation

Clause 42 relates to paragraph 41 of the Smith Commission Agreement concerning the role for the Scottish Government and Scottish Parliament in relation to the Office of Gas and Electricity Markets (Ofgem).

There are already provisions concerning the consultation of Scottish Ministers on the Strategy and Policy Statement. The UK Government will work with the Scottish Parliament and Scottish Government to devise a proportionate and workable method of consulting the Scottish Parliament on the strategic priorities set out in the Energy Strategy and Policy statement (SPS).

According to section 132 of the Energy Act 2013, Ofgem must have regard to the government’s strategic priorities set out in the SPS when carrying out regulatory functions.

The clause requires Scottish Ministers to lay Ofgem’s annual report and accounts before the Scottish Parliament, and therefore ensures that copies will be provided to Scottish Ministers.

 Clause 44 gives effect to the commitment to ensure that Ofgem will appear before committees of the Scottish Parliament on Scottish issues.

 

Scotland’s Crown Estate

Clause 23 relates to paragraphs 32 to 35 of the Smith Commission Agreement and the Crown Estate in Scotland.

 Those paragraphs provide for the management and revenue of Crown Estate assets in Scotland to be transferred to the Scottish Parliament, for management responsibility to be further devolved within Scotland, and a MoU between the Scottish and UK Governments to protect strategic UK-wide critical national infrastructure (such as defence & security and oil & gas and energy) to be achieved.

The Crown Estate is an independent commercial public body with responsibility for managing and turning to account Crown property forming part of the estate.

Under present law, the management of the Crown Estate is a reserved matter, with the Scottish Parliament unable to legislate in relation to it.

New powers will be given to the Scottish Government by a transfer scheme (“the scheme”), transferring in a single transfer the Crown Estate Commissioners’ (“the Commissioners”) functions of managing wholly owned Scottish property assets currently forming part of the Crown Estate (“the Scottish assets”).

It will remain possible for the Crown Estate to make investments in Scotland and the management of any such investment by the Crown Estate in property in Scotland after the transfer will remain a reserved matter.

Defence will also remain a reserved matter and current and future Defence utilisation of Crown property assets will be given legal protection.

The transfer of responsibility for the management of the Scottish assets will include control of any revenues arising from those assets as well as responsibility for managing all liabilities relating to those assets, including responsibility for ensuring the decommissioning of offshore renewable energy installations in Scottish waters under the Energy Act 2004 and declaring safety zones in Scottish waters and the Scottish Renewable Energy Zone.

UK Government will consider further the most appropriate means to achieve this and whether to make provision in the Scotland Bill or on an order under the 1998 Act.

The scheme has been chosen for a number of reasons. Firstly, it will enable the rights and liabilities that are transferring to be identified in detail so that the ‘starting point’ for the management of the Scottish assets in Scotland is made clear in a public manner.

Secondly, it will enable provision to be made for the protection of strategic UK assets.

Thirdly, the scheme will include provision for the protection of the employment rights of those Crown Estate staff who are connected with the management of the Scottish assets. This is essential to ensure that the Commissioners are able to transfer a viable ongoing enterprise.

 With the approval of Scottish Ministers, the Treasury may make a transfer scheme in relation to the management of the Scottish assets. The transfer is to the Scottish Ministers or a person nominated by them.

As property of the Crown these assets will continue to be owned by the UK monarch

The scheme will transfer the rights and liabilities associated with management, which will be designated by the scheme, and must include provision to secure that the employment of Crown Estate staff is not adversely affected by the transfers.

The scheme must also include such provision as the Treasury considers necessary or expedient in the interests of defence or national security. The transfer scheme is subject to those provisions. The purpose of these provisions is to ensure that the transfer is not detrimental to the defence of the realm or the interests of UK-wide national security.

Once the transfer scheme takes effect, the revenue from the Scottish assets will be paid into the Scottish Consolidated Fund.

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